IMF sounds alarm on rising government borrowing costs – business live

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Key events11m agoIntroduction: IMF sounds alarm over rising government borrowing costs The IMF/World Bank 2026 Annual Meeting is taking place at Queen Sirikit National Convention Center (QSNCC) in Bangkok, Thailand. Photograph: Athit Perawongmetha/ReutersView image in fullscreenThe IMF/World Bank 2026 Annual Meeting is taking place at Queen Sirikit National Convention Center (QSNCC) in Bangkok, Thailand. Photograph: Athit Perawongmetha/ReutersKey events11m agoIntroduction: IMF sounds alarm over rising government borrowing costsPressure to increase defence spending is another factor pushing up government borrowing – and European countries may need to fund it through spending cuts rather that higher taxes or borrowing, the Fund indicated.

Speaking today in Bangkok, Rodrigo Valdes, head of the IMF’s fiscal affairs department, told reporters:

double quotation mark“I think what countries should do from the macro perspective depends a lot in terms of their initial position. In general, however, the the defence spending will be persistent, so even if you accommodate it temporarily with debt, you have to be prepared at some point to recognise that that debt cannot forever finance this part.

And the second issue is that…in general, Europe has really high revenue ratios. So the space for a lot more revenues is not easy: it distorts, at the end of the day. So, the discussion about the social contract behind spending is very, very urgent.”

Valdes’s colleague Era Dabla-Norris warned:

double quotation mark“Given the fact that many of these spending pressures are going to be persistent, there are going to be difficult trade-offs, and countries are going to have to assess carefully, in communication and dialogue and discussion with the public, in terms of what the priorities are, what needs to come first, and what governments need to spend on.”

Good morning, and welcome to our rolling coverage of business, the financial markets and the world economy.

The jump in government borrowing costs this year is causing concerns at the International Monetary Fund, as policymakers gather in Bangkok for its annual meeting.

In its new fiscal monitor report, released this morning, the IMF is warning that the rise in sovereign bond yields has “raised the fiscal stakes” facing governments, as they try to keep borrowing under control.

Higher borrowing costs are adding to fiscal pressures at a time of high debt, making credible consolidation more urgent, it points out.

And it is demanding action, warning that “the more countries wait, the more painful the adjustment becomes.”

This is easier said than done, though! France, for example, faces a struggle to push through a budget that would only cut its annual deficit to 5% of GDP. And in the UK, chancellor John Healey could face a battle with his own MPs if he proposes welfare cuts in his budget later this month.

The IMF points out that since February – when the Iran war began, and oil prices jumped – the Group of Seven’s average 10-year government bond yield increased by over 1 percentage point, reaching its highest level in nearly two decades.

View image in fullscreen Photograph: IMFWith global public debt expected to exceed 100 percent of global GDP for the first time since the immediate aftermath of World War II, this is not a great time for borrowing costs to be hitting the roof.

double quotation markIn major advanced economies, high debt, spending pressures, and the prospect of large bond issuance in the years ahead are putting upward pressure on the yields investors demand to hold longer-term bonds.

Higher benchmark yields in major economies can also spill across borders, worsening debt dynamics elsewhere.

The IMF points out that the cost of servicing government debts have already jumped sharply. In the US, for example, interest payments are projected to climb from about 2.8% of GDP before the pandemic to 5.7% in 2031, which is roughly equal to projected expenditure on Social Security.

It’s worse for low-income countries, where interest payments today consume over 15% of tax revenues.

9am BST: Foreign secretary Ed Miliband speaks at the IMF Annual Meeting in Bangkok

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